Who pays for growth?

Abstract

In the debate on inequality and growth there is a tendency to treat all differences as inequalities. This is despite the possibility of making conflicting arguments about the effect of inequality on growth. It could be argued that inequality, by increasing the savings of the rich, can improve the possibility of greater investment and growth, even as inequality, by reducing access of sections of the population to education, can reduce productivity and growth. These contradictory effects can offset each other thereby distorting estimates of the effects of inequality and growth. This paper makes a case for a more disaggregated approach to the issue. It distinguishes between inequality and aspirational difference, before going on to use the case of savings and consumption patterns in India to explore the very different questions involved in each of their influences on growth.